The U.S. ethanol market is increasingly intertwined with that of Brazil – a country that simultaneously provides an export market for Midwestern corn-based ethanol, as well as a source for California to buy sugar cane-based fuel that state regulators say has a lower carbon footprint.

The trading triangle, which the Renewable Fuels Association calls the “Ethanol Shuffle,” has Midwestern producers simultaneously pushing for expanded ethanol mandates in the U.S. and fighting California rules that might deem the state off-limits to corn-based biofuels.

With two plants in Illinois and Wisconsin, Marquis Energy has been turning corn into about 200 million gallons of ethanol a year since 2008. The company is one of dozens founded in the Midwest during the U.S. biofuel boom of the past decade, when ethanol production more than doubled.

The boom may have bottomed out. A 45-cents-per-gallon federal tax credit on ethanol-blended gasoline expired in December, along with a 54-cents-per-gallon tariff on imported ethanol. That, combined with delays in the introduction of 15 percent ethanol gasoline, or E15, has left the U.S. market glutted, with more ethanol than Americans want or need.

“Since January, we’ve had some very tight (profit) margins,” said Jason Marquis, a manager at the company’s Hennepin, Illinois plant and son of founder David Marquis. But it’s not as bad as it could be. “Thankfully we have a captive audience.”

The captive audience is mostly in Brazil, currently the second largest consumer and producer of ethanol after the U.S. Marquis estimates that last year around 70 percent of the company’s ethanol was sold to Brazilian companies, at a time when the domestic market was becoming increasingly saturated.

Going to California

While the U.S. ethanol industry has been trying to expand its markets, it’s also been fighting a proposal to save one in California — which has actually been importing ethanol from Brazil, at the same time that Brazil is importing ethanol from the Midwest. Last year, the California Air Resources Board found that Midwestern ethanol production emits too much carbon dioxide, and proposed requiring California gas distributors to use less carbon-intensive ethanol.

The attorneys general of seven states sued the board, calling the measure an interference with interstate commerce. In December a federal judge ruled that the proposed regulation was unconstitutional; California is appealing the decision.

Nebraska corn farmers and ethanol companies are watching that legal battle more closely than other Midwestern companies, said Scott Merritt, director of the Nebraska Corn Growers Association.

It’s hard to track exactly what ethanol goes where, Merritt said. But generally, a lot of the ethanol produced in Minnesota, Iowa and Illinois goes to the East Coast by rail or to international markets by river. Nebraska ethanol companies send most of their biofuel west, to Idaho, Washington, Oregon, Nevada and California.

E15 to the rescue?

It’s not clear how strong the export market will remain, which is why the U.S. biofuels industry is hoping that E15 will be available at gas stations in next year. Almost all gasoline sold in the U.S. is 10 percent ethanol, called E10, largely as a result of the federal ethanol tax credit and the Renewable Fuels Standard, which required gasoline companies to use 7.5 billion gallons of renewable fuel by 2012.

E15 has been tentatively approved, although like ethanol in general it’s still controversial,. But whether or not the U.S. ethanol economy is going to keep growing isn’t really clear, said Christine Lasco Crago, an economic researcher at the University of Illinois and Energy Biosciences Institute.

“I think that biofuels are here to stay,” Crago said. “But the increase in production and demand in the coming years will depend on many factors such as government policies, oil price and technological breakthroughs that might occur.”

Anthony Brino is a Springfield, Illinois-based freelance writer whose work has appeared in The Allegheny Front, InsideClimate News and Illinois Statehouse News.

Critics of the ethanol industry are emboldened by Texas Sen. Ted Cruz’s victory Monday in the Iowa Republican presidential caucus, but not everyone agrees the win spells political trouble for the industry.